Author: Dr. Angelika Hellweger
26 September 2022
2 min read
Angelika Hellweger of Rahman Ravelli outlines the role of secondary sanctions in the wake of two Turkish banks’ response to the latest US action against Russia.
The announcement by Turkish lenders Isbank and Denizbank that they have suspended use of Russian payment system Mir came after the most recent US crackdown on those it thinks are helping Russians evade sanctions imposed due to the invasion of Ukraine.
The move by Isbank and Denizbank can be viewed as an attempt to manage the financial battles being waged by the West and Russia. Isbank stated it was assessing the latest guidance from the US Treasury and emphasised it was keen to comply with national and international laws and regulations and commercial business principles. Denizbank stressed that it "acts in accordance with international sanction regulations".
The US has extended its sanctions to cover the chief executive of the Bank of Russia's National Card Payment System, which runs Mir. Mir is used by thousands of Russians visiting Turkey every year, so the banks’ decision is significant.
The stance taken by Isbank and Denizbank comes as Western nations have been concerned over increased economic ties between Turkey and Russia. Their response can be viewed as an indicator of the power of secondary sanctions.
Their action follows the US Treasury writing to large Turkish businesses to warn of penalties being imposed if they maintain commercial ties with sanctioned Russians. Mir is still operated by the Turkish state lenders Halkbank, Vakifbank and Ziraat. Russians in Turkey can use these banks’ cash machines to withdraw money.
Secondary sanctions are a relatively new concept, although they have been implemented frequently by the US, particularly in relation to Iran and North Korea and, to a lesser extent China and Russia (before its invasion of Ukraine in February 2022).
For the US, secondary sanctions are an important foreign policy tool, as they are aimed at influencing decision-making processes in other jurisdictions. Whereas primary sanctions are enforced through civil or criminal penalties, secondary sanctions target business activities and force foreign persons to forego otherwise legal transactions with sanctioned persons that are occurring outside the US jurisdiction.
The imposition of secondary sanctions is meant to manoeuvre companies, banks or individuals into making a difficult choice. The choice is whether to continue doing business with the sanctioned entity or with the US – but it is not possible to do both. Secondary sanctions rely heavily on the importance of the US financial system and the use of the US dollar as a global reserve currency. Because of the primacy of the US dollar, most companies prioritise keeping good relations with the U.S.
The US Office of Foreign Assets Control (OFAC) has, in the past, responded rather slowly if countries tried to seek clarity on the secondary sanctions and the need to apply for exemptions. This unpredictability has led to many companies and banks over-complying with the sanctions in order to not risk violating them inadvertently – as the consequences of such a violation could be economic hardship and disrupted business relationships.
Angelika is a specialist in international, high-level economic crime investigations and large-scale commercial disputes. She has widely-recognised expertise in representing corporates and conglomerates in Europe, the Middle East, Africa and United States.